Appeals court brightens odds for customers of bankrupt Sentinel

A federal appeals court ruling today improves chances for customers of failed investment adviser Sentinel Management Group to recover a larger share of their losses, which totaled more than $600 million.

A Seventh Circuit Court of Appeals reversed a trial court ruling in 2010 that held that Bank of New York Mellon Corp. should not be liable for the customer funds, which were supposed to be held in segregated accounts. In a unanimous decision, a three-judge appellate panel remanded the case for a hearing on an unspecified date, said Chris Gair, attorney for Sentinel bankruptcy and litigation trustee Fred Grede.

“This doesn't finally decide the issues . . . but this is a really big day for Sentinel's customers,” Mr. Gair said. The Gair Law Group founder is teamed on the case with Jenner & Block LLP, where he was a partner until January.

Northbrook-based Sentinel's collapse in August 2007 was a harbinger of the financial crisis. Executives now under indictment allegedly misappropriated customer funds and pledged them to the bank to support their own proprietary trading.

Mayer Brown LLP, which represents Bank of New York, did not respond immediately to requests for comment.

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